State of the Economy – May 2009

I have written that we are seeing signs of the economy leveling off. Until the past week this has been more speculation than hard fact. Unemployment rates can still rise and if GM declares bankruptcy we may see new spikes. The banking sector stress tests are a fundamental sign however. Some may say that the need for $75 billion more is a sign of weakness, but in reality we can now quantify where the bottom is. With the auto industry we see the actions needed to achieve a turn-a-round. This new clarity and quantifiably is what the markets have been waiting for in order to start stabilizing. If you do not see the bottom it his hard for an investor to commit and start to rebuild.

I would claim that other markets need to conduct formal stress tests on critical industries and publish the results. I would claim that these stress tests need to be made a part of the mandatory reporting process. This way investors will have confidence and we will see problems grow before the bubbles they generate burst.